The Autumn edition of the London Development Barometer (LDB) survey has found that 59% of the respondents believe staying in the EU would be the most advantageous outcome for London development activity. The survey was administered at a time when the UK government was attempting to negotiate a revised Brexit deal before the 31 October deadline. In this context, 23% of the respondents indicated no preference to staying in the EU, leaving with a deal or leaving without a deal, as long as some clarity is achieved. Just 5% believed London’s development activity is best served by a no deal Brexit.
The LDB was launched in Autumn 2017 to gauge industry sentiment across a number of factors affecting London development activity. Although fears around Brexit have allayed since then, it has consistently been cited as one of the industry’s top two concerns. 76% of the respondents still believe that Brexit will have a negative or significant negative impact on London development activity, but this is an improvement on 80% two years ago.
Current sentiment on Brexit is consistent with the industry’s view regarding the benefit of the Article 50 extension six months ago. Back in April, 48% of the respondents did not believe the extension would lead to a better deal, while 36% did. Almost 60% agreed the ongoing uncertainty would have a negative impact on development activity, while 13% foresaw a positive impact.
Overall, the industry’s cautiousness regarding London development activity appears to be levelling out with 43% believing there will be less development activity in the next five years, compared to 46% a year ago and 57% two years ago.
However, industry outlooks for foreign investment and development finance have taken a hit in the last six months. Just 42% now believe inward investment levels will either increase or stay the same, compared to 64% six months ago. 73% expect Asia to be the largest investor, with the Middle East in second at 15% and The Americas in third at 7%.
71% predict development finance will become more expensive and only 27% believe it will become more readily available. These figures were at 65% and 37% respectively just six months ago.
Concerns around the global economy and global politics have also heightened in 2019. 63% now believe the global economy will have a negative impact on development activity, increasing from 52% six months ago and 42% one year ago. Similarly, 57% believe the same of global politics, up from 48% six months ago.
Along with Brexit, construction skills and capacity continues to be one of the industry’s top two concerns, with 75% believing it will have a negative impact on development activity. This has also eased from 85% one year ago and 78% two years ago.
Construction cost is third among concerns, with 63% predicting a negative impact on London development activity.
Confidence in mayoral polices has, on the other hand, improved with 47% predicting a positive impact compared to 35% six months ago. 65% have indicated that government investment will have a positive impact, up from 55% six months ago, while 68% continues to believe Crossrail 2 will have a positive impact – although that has slipped from 77% one year ago.
Improving the town planning processes remains the industry’s top priority for central and local governments, with 49% of the respondents ranking it in its top two and 33% as their first. It is some way ahead of calls to mitigate the Brexit transition period as the top priority, with 34% ranking it in the top two. Funding for local authorities, infrastructure and housing delivery places third among the priority list with 29% ranking it in their top two. Policies to support Build to Rent (BTR) and home ownership are again ranked as the lowest priorities.
With climate change issues dominating headlines in 2019, 47% of the respondents believe that sustainable design and construction will have a positive impact on London development activity. However investing in and promoting them ranked seventh out of nine in terms of priorities for central and local governments.
The industry’s view of government remains overwhelmingly dim, with 80% believing they are not doing enough to enable development in the capital. While improving on past figures including 83% six months ago, this continues the two-year dissatisfaction rating of 80% or more.
Nevertheless, confidence in market demand remains positive. 89% and 85% predict an increase in demand for senior living and affordable/council housing, increasing by 5% and 11% in the last six months, respectively. 78% continue to predict an increase for BTR, while confidence in all other sectors are positive on balance.
Retail is the exception, with 86% predicting a decrease in market demand, sliding from 79% six months ago and 41% two years ago. Just 3% predict an increase, compared to 5% six months ago and 21% two years ago. Several respondents have noted that repurposing vacant retail units are on the rise as a result.
Richard Hollingworth, director, M3 Consulting said, “London has enjoyed a sustained if somewhat unexpected level of investment and market demand for a couple of years. That confidence is wavering with persisting Brexit uncertainty. The results again show the industry wants certainty – whether that’s within the EU or some form of a new normal – and for the governments to return their attention to practicalities like improving town planning processes.”
The bi-annual LDB was launched by M3 Consulting in autumn 2017 to track the changes in market sentiment from property specialists and decision makers involved in London development activities. 150 industry professionals took part in the spring 2019 edition, with almost 60% of respondents at director level or above and an average of 17-years’ industry experience.